Strong opinions and shared concerns were aired during the Cruise Europe conference 2014, which took place on 7 May in Riga, Latvia. Speakers addressed topics ranging from itinerary disruption caused by political events to the availability and cost of appropriate fuel for ECAs and the challenge of marketing to changing customer demographics.
Addressing the impact on the cruise business of the ongoing global economic crisis, Cruise Europe chairman Mike McCarthy said that there seemed to be agreement among the cruise lines that “the worst may be over. Key source markets appear to be recovering even though yields to the lines have stagnated.”
McCarthy said costs could be cut by lower speeds and changed itineraries but he warned: “It’s not just about speed but also the availability and cost of correct fuel in different parts of the world.” He added that ports would increasingly need contingency plans to deal with large cruise vessels on both a scheduled and unscheduled basis depending on political events.
The implications for organisations such as Cruise Europe of the new CLIA Global Ports Committee were touched on by several of the speakers. McCarthy said: “It will pose a challenge for associations like Cruise Europe and it is very important that a two-tier industry does not emerge from this.”
John Tercek, VP commercial and new business development, Royal Caribbean Cruises Ltd, argued that the new body should not prove a threat to existing port associations. “In the cruise industry, we have embraced CLIA as the unifying voice worldwide. We are trying to meld CLIA in some way with organisations like Cruise Europe in a manner that will mutually embrace the objectives of the cruise industry and the destinations.”
On the subject of recent changes in senior management structures at the biggest cruise companies, McCarthy said: “The cruise industry is entering new phase which is more conservative and analytical, designed to bring steady growth, replacing the entrepreneurial approach of the past.
The ‘corporatisation’ of the cruise business was changing traditional patterns of relationship building with ports, said Tercek. “The big cruise companies are corporate entities and staff turnover is incredible. Don’t take for granted you have an ongoing relationship with a company but keep in touch regularly.”
In this respect, the formation of the Costa Group as part of Carnival Corporation means that AIDA Cruises and Costa Cruises (along with Ibero Cruises) now cooperate on port communications and planning, said Harald von der Osten-Sacken, VP destination management, AIDA Cruises.
“We are one company with two locations and 27 ships in total. By dividing the world in two parts, the AIDA world and the Costa world, we can visit ports more often, have closer contact, and are more familiar with port tariffs.”
In general, AIDA covers port planning for Europe, the Baltic and North Sea, the Canary Islands, the Caribbean, the Red Sea and the Persian Gulf, while Costa has responsibility for the Mediterranean, Asia and South America. “One staff member negotiating for both of us will contact a port,” explained Von der Osten-Sacken. “Some agents will lose business as a result but that is not our intention. We will try to find ways for all agents to work with us.”
The cruise line speakers were each asked how the approaching Northern European ECA sulphur limits were affecting their itineraries. Royal Caribbean’s Tercek said: “We are trying to figure out ways to burn less fuels, with shorter itineraries and slower ships. Fuel is our most volatile cost. Our new ships are more efficient, but the ECA does impact the Baltic itineraries.”
Steve Masters, marine operations manager, Disney Cruise Line, said: “Going back to the Baltic is not good timing for Disney in terms of the ECA but we have cut down the distance from UK to the Baltic by going to Copenhagen for 2015. We also now have a maximum speed of 19 knots for our cruises.”
Spina said: “At Norwegian we’re investing a large amount in scrubbers – almost all our ships have them. There will be higher fuel costs in all that but there are ways we can combat that financial model that dictate which ports we go to.”
Von der Osten-Sacken said: “You cannot go to a shop and buy scrubber technology so we have invent-ed it. AIDAluna is the first ship with scrubbers and our other new ships will all get them.”
Asked how European ports are doing when it comes to attracting the major cruise lines, the cruise executives were broadly positive in their comments. Tom Spina, former director of the port of New York and director of port finance and analysis at Norwegian Cruise Line since 2013, said Norwegian was keen to build on its ‘milk run’ of regular calls in Europe, with Norway benefiting especially from new calls. “We have a lot of repeat customers, but the reality is our capacity is going down in Europe. We are trying to create the ability to strengthen our itineraries by taking that milk run and doing a couple of different itineraries.” He added: “We may be under capacity in Europe compared to some big brands, which is a good sign as it means there is potential here – maybe for another ship, maybe a bigger ship. There is a possibility for us to grow over the next two to three years.”
Masters said the decision to increase Disney’s northern European presence for 2015 was paying off. “2015 was a trial to see how the northern European market went and we are well ahead of where we expected; there is a very positive mood. We thought we would come back in 2017 and have a year in the Mediterranean in between. However, with sales doing as well as they have done we may come straight back in 2016.”
Shore excursions were discussed by representatives of Silversea Cruises, Carnival UK and AIDA Cruises. AIDA’s Von der Osten-Sacken said many ports focused on the wrong issues when promoting their facilities to cruise lines. “We don’t care if the terminal is nice, or even if there is a terminal at all, but we do want to know about the distance to the next port so we can plan the time of arrival in a chain of ports.” He said he categorised ports as ‘positive’ or ‘negative’ based on cost. “A port is negative where port costs are higher than the shorex revenues. If an expensive new terminal adds 20 euros per passenger, then it’s a negative port.” The presence of ‘hop-on, hop-off’ buses could be the deciding factor in planning calls, he remarked. “Why would a port allow these buses directly in front of a cruise ship? That means you kill your own business. We are looking for alternatives to Barcelona because of these buses as it’s now a negative port for us even though it is a marquee port.”
Mary Shaw Delaney, director of shoreside services for Silversea, was outspoken in her criticism of ports that charged the same fees for her company’s small ships as for the industry giants. “Our largest ship carries only 540 people. Our ships cannot make up for the port costs and the pilotage fees, which are outrageous. We get a high price right up front and there isn’t any way that our shorex sales can offset the port costs. Nobody is going to get rich on Silversea shorex. There should be a different equation for smaller lines.”
John Richardson, special advisor to FIPRA International, outlined the security threats to the cruise industry from the turmoil in Ukraine. “It’s goodbye to Black Sea cruising, with Odessa the last port left to Ukraine. The next phase is likely to see more action regarding Russia’s financial links with the west. Negotiations ongoing with Russia to facilitate granting of visas for Russians visiting Europe have been suspended, which is also going to affect increased cruise demand hopes.” Unexpected fallout could occur in cruise ship construction projects too, said Richardson. “The STX shipyard in Saint-Nazaire is building two helicopter carriers for the Russian navy. If there were to be difficulties with those deliveries, the impact on STX could be considerable with possible knock-on effects on the cruise ships being built there.”
Richardson’s advice to cruise operators was uncompromising: “If you want to hang onto Russian sources of fuel for cruise ships, you need to keep close to the people in Brussels and Washington regarding sanctions and counter sanctions. You don’t want them to stop fuel from Russia – that is the worst thing that could happen to the cruise industry.”
On the subject of how cruise lines are dealing with instability in the Black Sea region, Shaw Delaney said that cruise lines had to balance safety with the potential for financial loss. “Particularly for our German customers, but the UK is not far behind, if a cruise line substantially alters an itinerary, customers legally can demand a full refund. We have to take into account whether our guests are going to be safe and what it is going to cost us.”
Shirley Henderson, manager, shore excursions for Carnival UK, said the company had a strong focus on shorex safety but that this needed to be balanced with good content. “People are looking for both ‘safe’ and ‘memorable’. This is not a matter of personal preference.”
She said Carnival viewed shore excursions as ‘memory generators’ and tried to ensure satisfaction by catering for ‘bucket list’ travellers wanting to see marquee ports, ticking off all the iconic sites, and those seeking lesser-known itineraries. “We try to put new ports in to attract our repeat passengers.” She warned, however: “Shorex is declining due to shorter itineraries, more sea days, shorter call times and fewer ports in a cruise. Also with later booking, guests don’t book shorex; and an in-creased number of competitors are offering cheaper shorex online.”
The conference ended with the announcement that the Spanish Atlantic Ocean port of Santander will be hosting the Cruise Europe conference in 2015 from 28-30 April.